Go Back  British Expats > Living & Moving Abroad > Moving back or to the UK
Reload this Page >

US CGT Tax question please

US CGT Tax question please

Old Feb 16th 2017, 3:22 am
  #1  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default US CGT Tax question please

This forum is so informative.....thanks to all who participate.

My question is does anyone know what the US CGT position is when one still owns a home in the UK, (purchased long before they ever moved to the US), which they have never rented it out, but used regularly to visit family. All original furniture, personal belongings and clothes are still in it. Having moved to the US for employment purposes, they bought a home in the US and stayed 20+ years becoming US Citizens. Now they want to sell their US home and move back to the UK to retire but they don't particularly want to live in their original UK home very long since it's not a suitable property to retire in. They would like to buy a bungalow instead.

Would US CGT be imposed on their original UK home when they sell it in order to fund the purchase another principal private residence, (bungalow)? The US CGT tax rules are suggesting that one has to live in it for 2 years after selling their principal private residence (US home in this case), before it can be excluded for CGT relief. The couple are not young anymore and need to get a bungalow fairly quickly (at least within a year of moving back). If CGT applied to this original residence it would cause much hardship financially since they wouldn't be able to afford a decent bungalow after submitting a huge amount of tax to the US authorities because the property was purchased in the 80's and has since increased in value....in line with all other property increases over that time period. This seems deeply unfair if what we read is true.

I'd be most greatful to know if anyone else has been in the same predicament and if so what the outcome was or if indeed this tax applies in the first place to a home such as this. Thank you in advance for any replies or thoughts you may have on this. TiaMaria.
TiaMaria57 is offline  
Old Feb 16th 2017, 3:33 am
  #2  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,397
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: US CGT Tax question please

You've pretty much got it right. .... Live in it for two years, or pay the tax.

Taxes aren't meant to be fair.

Is there some reason why the proceeds of the US home can't be used to buy the bungalow? Then sell the other home after they have "lived in it for two years"?

Last edited by Pulaski; Feb 16th 2017 at 3:36 am.
Pulaski is offline  
Old Feb 16th 2017, 4:46 am
  #3  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by Pulaski
You've pretty much got it right. .... Live in it for two years, or pay the tax.

Taxes aren't meant to be fair.

Is there some reason why the proceeds of the US home can't be used to buy the bungalow? Then sell the other home after they have "lived in it for two years"?
Hi Pulaski, thank you for your very quick response and for clarifying my thoughts.

One other question please......if they bought the bungalow with US proceeds would they still have to live in the original house for 2 years to avoid US CGT? Then having 2 houses they'd be subject to UK CGT but I guess only on much smaller gain on the bungalow since it won't have appreciated too much in two years.

Thank you, TiaMaria
TiaMaria57 is offline  
Old Feb 16th 2017, 6:36 am
  #4  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by TiaMaria57
Hi Pulaski, thank you for your very quick response and for clarifying my thoughts.

One other question please......if they bought the bungalow with US proceeds would they still have to live in the original house for 2 years to avoid US CGT? Then having 2 houses they'd be subject to UK CGT but I guess only on much smaller gain on the bungalow since it won't have appreciated too much in two years.

Thank you, TiaMaria
I believe I put this the wrong way round. They would surely claim their original UK property as their PPR in order to claim max relief.
TiaMaria57 is offline  
Old Feb 16th 2017, 8:24 am
  #5  
BE Forum Addict
 
cyrian's Avatar
 
Joined: Apr 2009
Location: Scotland & Touraine [37]
Posts: 3,013
cyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond reputecyrian has a reputation beyond repute
Default Re: US CGT Tax question please

Originally Posted by TiaMaria57
This forum is so informative.....thanks to all who participate.

My question is does anyone know what the US CGT position is when one still owns a home in the UK, (purchased long before they ever moved to the US), which they have never rented it out, but used regularly to visit family. All original furniture, personal belongings and clothes are still in it. Having moved to the US for employment purposes, they bought a home in the US and stayed 20+ years becoming US Citizens. Now they want to sell their US home and move back to the UK to retire but they don't particularly want to live in their original UK home very long since it's not a suitable property to retire in. They would like to buy a bungalow instead.

Would US CGT be imposed on their original UK home when they sell it in order to fund the purchase another principal private residence, (bungalow)? The US CGT tax rules are suggesting that one has to live in it for 2 years after selling their principal private residence (US home in this case), before it can be excluded for CGT relief. The couple are not young anymore and need to get a bungalow fairly quickly (at least within a year of moving back). If CGT applied to this original residence it would cause much hardship financially since they wouldn't be able to afford a decent bungalow after submitting a huge amount of tax to the US authorities because the property was purchased in the 80's and has since increased in value....in line with all other property increases over that time period. This seems deeply unfair if what we read is true.

I'd be most greatful to know if anyone else has been in the same predicament and if so what the outcome was or if indeed this tax applies in the first place to a home such as this. Thank you in advance for any replies or thoughts you may have on this. TiaMaria.
Hi,
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
cyrian is offline  
Old Feb 16th 2017, 1:20 pm
  #6  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,397
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: US CGT Tax question please

Originally Posted by cyrian
Hi,
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
There is a flaw in this plan, and potentially a major one - under UK law you only avoid CGT on your home for the period you lived in it. There are some exceptions, so I would strongly recommend getting some advice from an experienced tax accountant in the UK, on which exceptions might apply*, but, generally speaking, if you own a house for 20 years, but only live it, or have other exceptions for 4 years then you will pay tax on 16/20 of the gain.

* The big possible exception in this case is "periods when you were working overseas", but I don't know enough about the OP's situation to know if this might apply.

Last edited by Pulaski; Feb 16th 2017 at 2:58 pm.
Pulaski is offline  
Old Feb 16th 2017, 2:45 pm
  #7  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by cyrian
Hi,
Sell your USA home.
Give up your US citizenship if you don't intend living there any more.
You then only have to worry about UK taxes.
Move back into the UK home and get it ready for sale.
There is not a 2 year rule in the UK.
You register with a doctor: HMRC and DWP at that address.
The UK home is your only and therefore principal home.
Sell the UK home with no CGT liability.
In the UK, you can nominate your principal home.
Recently, several MPs used this facility - it is called "switching" to avoid CGT on their more expensive home.
Agree with the idea of giving up the US Citizen bit.....pain in the backside anyway to think of all the tax filing paperwork to be complete when in your 70's/80's.
TiaMaria57 is offline  
Old Feb 16th 2017, 2:56 pm
  #8  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by Pulaski
There is a flaw in this plan, and potentially a major one - under UK law you only avoid CGT on your home for the period you lived in it. There are some exceptions, so I would strongly recommend getting some advice from an experiencrd tax accountant in tbe UK, on which exceptions might apply*, but, generally speaking, if you own a house for 20 years, but only live it, or have other exceptions for 4 years then you will pay tax on 16/20 of the gain.

* The big possible exception in this case is "periods when you were working overseas", but I don't know enough about the OP's situation to know if this might apply.
This is new information Pulaski...I didn't know about the time period of living in the UK home. They moved overseas unexpectedly for a contract which turned into 20 some years, hence never getting around to selling their UK prior residence. The wife would use it for visiting family for several weeks a year and then for several months a year when her aged parents became ill, which gave her somewhere to reside whilst caring for them and all after becoming USC.

Thank you for pointing this time period out. I certainly agree a qualified/experienced tax accountant is necessary.
TiaMaria57 is offline  
Old Feb 16th 2017, 3:05 pm
  #9  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,397
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: US CGT Tax question please

Originally Posted by TiaMaria57
This is new information Pulaski...I didn't know about the time period of living in the UK home. They moved overseas unexpectedly for a contract which turned into 20 some years, hence never getting around to selling .....
So far as I understand the rules, I think that puts them squarely in the exception for "living overseas for work", but given the amount of tax at stake, getting professional advice on that is definitely the way to go.

Other things to consider/ ask about, include indexation relief (the calculation can be complex, but takes general inflation out of the equation - e.g. house bought for £100k, sold for £200k, but inflation over the period is £20%, then only £80k would be potentially taxable), and also capital improvements i.e. home additions that added to the value of the home are included in the purchase price.
Pulaski is offline  
Old Feb 16th 2017, 3:41 pm
  #10  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by Pulaski
So far as I understand the rules, I think that puts them squarely in the exception for "living overseas for work", but given the amount of tax at stake, getting professional advice on that is definitely the way to go.

Other things to consider/ ask about, include indexation relief (the calculation can be complex, but takes general inflation out of the equation - e.g. house bought for £100k, sold for £200k, but inflation over the period is £20%, then only £80k would be potentially taxable), and also capital improvements i.e. home additions that added to the value of the home are included in the purchase price.
Again, thank you. I wondered if they allowed for inflation/indexation. To tax someone on a sum which has greatly increased due to inflation over the years seems unjust when they have to purchase another property which has also increased in price. The money at stake is enormous considering it was purchased in the mid 80's. But they will need most of the funds to purchase something of similar value to what they already own, except it will be on one level living, (bungalow). These people are not millionaires and certainly not tax evaders.....just normal people trying to retire without been a burden on anyone. They won't be able to if they have to cough up to the US authorities! Please excuse my rant!

Please can you explain to a dumbo (me), what you mean by "I think that puts them squarely in the exception for living overseas for work".
Thank you, TM
TiaMaria57 is offline  
Old Feb 16th 2017, 3:54 pm
  #11  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,397
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: US CGT Tax question please

Originally Posted by TiaMaria57
..... Please can you explain to a dumbo (me), what you mean by "I think that puts them squarely in the exception for living overseas for work". .....
I think they will be deemed to have lived in the house for all the years they were living overseas, because it was "for work reasons", which is a specific exception to the "if you weren't living in it, you pay CGT" rule.
Pulaski is offline  
Old Feb 16th 2017, 4:38 pm
  #12  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by Pulaski
I think they will be deemed to have lived in the house for all the years they were living overseas, because it was "for work reasons", which is a specific exception to the "if you weren't living in it, you pay CGT" rule.
Apologies....are we now talking about UK CGT when referring to "exception for work purposes"? Sorry for being confused because although I headed the thread US CGT, there is also the UK CGT to consider and I'm guessing that this is what you were referring to in that statement. Am I correct?

I appreciate your wisdom of pointing out all the stuff from both countries which they need to consider for future tax implications. It is indeed a minefield and timing of the sale of US property, the move to UK and the sale of their UK property, as well as the purchase of a UK bungalow (if any funds are left over after all this tax!) will be of great importance given the two countries different tax years. TM
TiaMaria57 is offline  
Old Feb 16th 2017, 5:56 pm
  #13  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,397
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: US CGT Tax question please

Originally Posted by TiaMaria57
Apologies....are we now talking about UK CGT when referring to "exception for work purposes"? ....
Yes, that's UK CGT. I brought it up after someone suggested expatriation and thereby excluding the impact of US taxes/CGT. NB expatriation may trigger a US tax bill.
Pulaski is offline  
Old Feb 16th 2017, 6:32 pm
  #14  
Forum Regular
Thread Starter
 
Joined: Dec 2016
Location: Ex North Carolina, now in Yorkshire
Posts: 96
TiaMaria57 is an unknown quantity at this point
Default Re: US CGT Tax question please

Originally Posted by Pulaski
Yes, that's UK CGT. I brought it up after someone suggested expatriation and thereby excluding the impact of US taxes/CGT. NB expatriation may trigger a US tax bill.
Thanks for the clarification of who's CGT you were referring to.

I believe expatriation is the way to go in the long run, but not immediately after returning . Maybe after 5 years though. But it depends on ones individual circumstances. However, it's not easy to do since I understand there are multiple questions asked at 2 interviews (read interrogations), and a large fee attached. Someone else I know who is a USC and living in Switzerland is in the process of renouncing and is having to pay the 'Exit Tax' since they have property in London as well as considerable assets.
TiaMaria57 is offline  

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service -

Copyright © 2024 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.